Would it be a good idea to pay to become my own LLC to cover myself in the event of a freak lawsuit from a disgruntled renter?

Im in a similar situation with a municipality, but if you are able to cover health insurance through the service, that makes the transition out of the traditional W-2 much more feasible and also covers all of your bases.  

I'm sure I will have to increase that over time but rent increases will help cover that as well.  

Im doing most of the renovation myself, and the HELOC just barely covered the down payment and closing costs.

I'll cover his payments and give him his $350k asking price.

Maybe your expenses will get covered by the other rents, but unlikely you’ll have excess cash.

The current DOM for those particular zip codes (which covers everything from Texas City to Clear Lake to Pasadena and everything surrounding) still shows that we are still in a strong seller's market. 

I would do this if it meant saving enough on purchase price to justify the seasoning period, the interest rate risk, and I still had adequate reserves to cover costs and expenses.However if you aren't able to see real savings on our has price then you should finance it and use Heloc for down payment only.

Your inspection contingency covers you for problems not disclosed or discovered after inspection. 

Be prepared to pay for any marketing expenses incurred during the process, and be sure to let him know that you're happy to cover any out-of-pocket expenses.